Singapore’s battle with inflation

As its neighbors play salary “catch-up” the city-state could face further worker unrest as wages fail to keep pace with inflation

By Shamim Adam / Bloomberg

Illustration: Yusha

When dozens of Chinese bus drivers recently held Singapore’s first strike in 26 years, the island deported the perpetrators. Getting rid of the soaring prices that are emboldening calls for higher wages will not be as easy.

Rising housing, transportation and business costs have given the city-state the fastest rate of inflation among the developed world’s biggest economies. The illegal protest by the SMRT Corp drivers late last month may herald a further escalation in price pressures, as even foreign laborers whose cheaper wages have helped restrain inflation express dissatisfaction with their incomes.

“All price go up, only salary no up,” Delowar Hussin, a Bangladeshi laborer, said as he hauled a bag of concrete debris into a dumpster outside a Singapore office tower housing Morgan Stanley and Citigroup.

Hussin, 41, said he earns a basic wage of S$18 (US$15) a day, a rate that has not changed in the past four years even as his monthly living costs jumped to as much as S$400 from less than S$300.

Singapore is grappling with the elevated inflation that comes with years of economic growth and population expansion on an island smaller than New York City, with rising demand fueling record property and car prices. The country tightened monetary policy this year while neighbors from Thailand to the Philippines cut interest rates, spurring gains in its currency even as the government predicts GDP will rise at the slowest pace in three years.

ADJUSTMENT PERIOD

“Singapore Inc is facing an adjustment period and there is no easy way out,” said Kit Wei Zheng, an economist at Citigroup who previously worked for the Monetary Authority of Singapore. “The work-cheap model is reaching its limits, especially since the cost of living is high. With inflation likely to stay above historical averages, macroeconomic policy will likely remain on a tightening bias.”

Singapore has the highest inflation rate among 27 economies with GDP of at least US$100 billion and classified by the IMF as “advanced.” Price gains on the island of 5.3 million people have reached 4 percent or more every month bar one since November 2010, more than double the 1.9 percent average in the past two decades.

Inflation is forecast by the central bank to average more than 4.5 percent this year and be in a 3.5 percent to 4.5 percent range next year.

“Persistent tightness” in the labor market will support slightly stronger wage increases next year, which will continue to be passed through to consumer prices, the central bank and Trade Ministry said last month.

MORE STRIFE

“I wouldn’t be surprised if labor strife becomes a more frequent occurrence going forward,” said Irvin Seah, an economist at DBS Group Holdings in Singapore. “High inflation will very likely persist in the years ahead. Workers will surely demand higher wages to compensate for their loss in real income.”

In a country that is host to 2 million foreigners, many hotels, restaurants, builders and shipyards rely on overseas workers willing to toil for lower wages than Singaporeans, and employers are bracing for the possibility of further discord. Two workers from China refused to come down from the top of a crane on Thursday, Channel NewsAsia reported on its Web site. Police said the incident was related to a work dispute and that Singapore Civil Defence Force and Ministry of Manpower officials were also at the scene.